Many miss ESOP relief
BENGALURU: Two important initiatives for new companies in the 2020 Union Budget: relaxation in taxes on employee stock options (ESOP) and exemption from income taxes for new companies, have been criticized. The fine print of the Budget reveals that they are only applicable to companies that qualify under Section 80-IAC, which may limit the benefit to only a few hundred new businesses formed after 2016. ESOP exemptions and tax exemptions only apply to approximately 200 new companies recognized by inter-ministerial board.
To give a boost to the startup ecosystem, I propose to ease the tax burden of employees by postponing the payment of taxes for five years or until they leave the company or when they sell their shares, whichever is earlier, said the finance minister said while presenting budget.
ESOPs are currently taxed when they become eligible for the assignment, which is a financial burden for employees, since they may not be able to sell them at the same time. Employees also pay taxes twice, at the time of exercise and at the time of sale (capital gains tax). Start-up pressure groups such as IndiaTech, IVCA and had asked the government to simplify this by taxing the ESOPs just at the time of liquidity or sale.
Sitharaman also softened the rules for the three-year tax exemption on profits for new businesses, bringing the turnover limit to Rs 100 Rs of Rs 25 Rs and the period during which 10 years can be exercised at from 7 years. But the small print of Budget indicates that only new 80-IAC companies can benefit from these measures. More than 27,000 new companies are registered in the department of industry promotion and internal trade (DPIIT).